Kreditech Raises $92M to Provide Banking Services to a Risky Segment

On 28th September 2015, Kreditech, a technology company that delivers a range of custom-tailored financial services to customers across Europe and beyond, raised $92 million in Series C round to build a financial product for serving a segment with little or no credit history. Funds raised in Series C more than doubled previous round investments of $40 million. According to the company's official website, the round was led by J.C. Flowers & Co. LLC, a leading private investment firm. Peter Thiel and Amadeus Capital Partners invested earlier this year in a bridge loan that has been further converted into Series C equity. Existing shareholders Värde Partners, HPE Growth Capital and Blumberg Capital also participated in the round. Kreditech is discussing the opportunity to increase the Series C round to over $112 million. However, despite the rapid growth, the Kreditech CFO Rene Griemens said the company remains unprofitable even with halved operational costs.

Target Audience

The company is focusing more on the countries with emerging economies where people have very little or no credit history. As stated on the website of the company, Loren Felsman of J.C. Flowers, who will join company’s board, said: There are people without access to fair and affordable credit in every market we have analyzed, and technology is enabling new and better ways of offering credit to these customers. Kreditech has developed a remarkably sophisticated approach to real-time consumer banking, and focuses on the markets that are relatively less well-served by traditional credit bureaus and financial service providers. Most lenders, including those built on modern technology, may not crack these markets for years.

The choice of target audience for banking raises many questions for FinTech companies like Kreditech. By offering loans to the groups that may not be able to pay back with a very high probability is a risky game. However, Kreditech is emphasizing its focus on data driven decisions. The company has built an automated process powered by self-learning credit-scoring algorithms to ensure fast and convenient customer service, minimizing cost and human factors while constantly improving the technology with new customer data.

Algorithm Behind the Approval

In the case of Kreditech, the company uses some 20,000 data points to assess a person’s suitability as a loan candidate, ranging from single lines in bank account statements to behavioral info such as a person’s interactions with web sites and also social data.

These data points are then grouped into several hundreds of clusters to determine how likely it is that someone will pay back a loan, before that person is approved. This rigorous process keeps the acceptance rate relatively low — 80% of applicants can be refused — but success in recouping money is high.

Kreditech in Numbers

Being primarily a technology company, Kreditech developed an algorithm that allows assessing around 20,000 data points per loan application. According to Kreditech, already 2,000,000 people have been scored and around 500,000 credit lines have been opened to date.

Other important numbers to know about the company are:

  • Less than 1 minute – the average decision time per loan application
  • €50 million – revenue run rate
  • €120 million – issuing run rate
  • 2 countries ramp-up (Romania and Brazil)
  • 9 countries live (Poland, Spain, Czech Republic, Russia, Mexico, Australia, Peru, Kazakhstan and Germany)
  • 200 employees of 40 nationalities, 40% of which are women.